Weekly Market Review
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A Brief on Global & Local Markets, Investment Strategy.

Week in Review | 3 January - 7 january 2022

Global Equities Slip Amid Tighter Monetary Policy Outlook

Global financial markets endured a slow start to the new year, with growth and tech names heavily battered down amid a tighter monetary policy outlook in the US. On the flipside, a rotation in flows saw cyclical and value stocks rebounding strongly. On a week-on-week basis, the S&P 500 index was down 1.9% while the tech-heavy Nasdaq closed the session 4.5% in the red.

US Data Highlights:
  • The 10-year UST yield rose by 25 bps in the week to 1.76% as investors reacted to a more hawkish Federal Reserve (“Fed”), as well as persistent inflationary pressure.
  • The FOMC meeting minutes for December 2021 released last week outlined the possibility of a balance sheet reduction this year, alongside the Fed’s current rate hike and tapering plans. 
  • To recap, the Fed reduced its balance sheet by US$50.0 billion a month from 2017 to 2019, effectively reducing it to US$3.8 trillion from US$4.5 trillion. With the pandemic outbreak which brough forth further spending, the Fed’s balance sheet has now ballooned to a staggering US$8.8 billion. 
  • On US data, unemployment reading for December 2021 fell by 0.3% to 3.9% (vs. estimates of 4.1%) while averagely hourly earnings also improved strongly by 0.6% month-on-month. The seemingly stronger labour data reinforces the case of upward pressure in inflation, and in turn, interest rate hikes.

Closer to home, the Asian market bucked global trend with the MSCI Asia ex Japan index ending the week barely unchanged; largely underpinned by the Indian and Singaporean markets which were up by 2.6% respectively, as well as Indonesia which advanced by 1.8%. The outperformance seen can be attributed to their stronger weightage in banking and financial names (approximately 30.0-40.0% of the respective market), which are beneficiaries of a rising rate environment that should in turn pave the way towards better margins.

China was the underperformer in the region, as the market continue to be dragged down by an overhang within the property space and weakness across the tech sector. Notably, Tencent reportedly reduced their stake in Sea Ltd – a Singaporean gaming and e-commerce group and the parent company of Shopee – by selling some US$3.0 billion worth of shares last week. While speculations are suggesting that the deal was done so to comply with China’s antimonopoly regulations, Tencent denied the notion and said that the resources from its divestment will be used “to fund other investments and social initiatives.” Tencent’s holding in Sea is now at 18.7%.

Tencent, despite starting off as a company that focuses on the gaming business, has made plenty of investment initiatives over the years, partially owning the likes of Meituan, JD.com, and Pinduoduo among many others. While there have been no mentions of further divestment in Tencent’s other holdings, the uncertainty on its own were sufficient to further exacerbate the weakness within China’s tech sector last week.

In terms of portfolio positioning, we took the opportunity to trim down our holdings in Tencent to about 3.0-4.0%. We have also slightly reduced our exposure to tech and high growth stocks and gradually increased our exposure in banks via DBS Bank and UBS, as well as several Indian banks, namely ICICI Bank and Axis Bank. Against the current backdrop, we are employing a barbell approach – i.e. still holding on to quality growth stocks that exude secular and long-term potential, as well as balancing our exposure into value and cyclical names. Currently, our global and regional funds remain highly invested, with cash levels of around 3.0-5.0%.
Updates on Malaysia

The domestic market endured a rather quiet session for most part, with the benchmark KLCI trending 1.6% lower as a lack of catalyst continue to weigh down on sentiment. The small cap space, on the other hand, enjoyed a more vibrant session with the index advancing by 1.6% in the week.

Notably, the holiday lull appears to have affected trading activities for the start of the year, as daily trading value on Bursa fell to below RM2.0 billion per day, which is approximately 20.0% lower than the average of 4Q2021 and some 40.0% lower than the average of 2021 as a whole. Though, activities are expected to pick up in the coming weeks as investors gradually return to the playing field.

Coming off from a relatively volatile year, political risk is likely to remain a key headwind for the local market amidst a fractured political landscape, especially in the lead up towards a potential election coming 2H2022. Nevertheless, we still see opportunities in selective parts of the market, including banks which are beneficiaries of a rising interest rate cycle, as well as the technology and manufacturing segment which could see a strong recovery on the back of an expansion in orders as demand gradually picks up. In any case, we will continue to maintain our cautious stance in navigating the roads ahead and keep a close watch on further market developments from here.
Fixed Income Updates & Positioning

The Asian credit space endured a rough start to the year, as a sharp spike in UST yield broadly affected sentiment across markets, while incessant negative news flow surrounding the Chinese property sector further exacerbated the weakness seen.

Notably, Shimao Group Holdings fell under pressure after it failed to make full repayment on an onshore trust loan last Friday, effectively sending the company into default. The news triggered a widespread sell-off even in the offshore space, as Shimao bonds fell by over 20 points across the curve to trade around 30 to 40 cents on the dollar as of Friday. Other HY property developers – including the likes of Agile Property, Powerlong, and Times China Holdings – also weren’t spared from the onslaught, as a spillover forced bond prices to fall by some 5 to 10 points.

The case of default could see a downgrade to Shimao’s credit rating from its current B rating, which could in turn further limit the company’s refinancing avenues. The top management has since guided that the company will be expediting the process of asset sale, including both residential and commercial projects. Over the weekend, Shimao reportedly placed all of its properties up for sale, which included a preliminary CNY10.0 billion (US$1.6 billion) deal with a state-owned company to buy Shimao International Plaza in Shanghai. Shimao shares and bond prices have since rebounded slightly at market opening this week.

In other news, Yuzhou Group has reached out to investors to request for a 1-year extension for its bonds that are due in 2022. To recap, the company has a total of US$590.0 million worth of offshore bond maturities due this month, excluding other coupon payment obligations. In response to the diminishing likelihood of Yuzhou refinancing its USD senior unsecured notes this month, Fitch Ratings on Monday (10 January 2022) downgraded the rating for the said notes to “CCC-” from “B”, while Yuzhou’s credit rating was also downgraded to “CCC-” from “B-”. While we do not own any of Yuzhou’s 2022 bonds, we will be monitoring the situation closely, especially with regards to the company’s bond payment extensions.

On a more positive note, KWG Property has said that its debt maturity of US$250.0 million due 11 January 2022 will be paid to bondholders as scheduled.

Recent developments may well suggest that the ongoing liquidity crunch within the Chinese property space is much more severe than what many has initially expected. In addition, multiple payment obligations ahead of the upcoming Lunar New Year could further complicate cash management for many developers; and this could further escalate default risk especially if policy doesn’t ease meaningfully. While the central government has taken steps ranging from easing property financing conditions to encouraging financially healthier companies to acquire assets from troubled developers since late last year, additional measures to further stabilise the property sector remain to be seen. We continue to maintain our cautious approach towards the said sector.

Outside of China’s property woes, activities on the primary front have been more uplifting. Approximately US$21.0 billion worth of bonds were rolled-out in the first week of January 2022, led by Reliance Industries’ triple-tranche issuance of US$4.0 billion (which was almost 3.0x oversubscribed), as well as from BNP Paribas and UBS within the AT1 space. We have participated in these bonds for some of our regional portfolios.

Back home, the domestic bond market saw yields trended higher last week, in line with the movement in UST yields albeit to a smaller extent. MGS yields increased by some 4 to 10 bps across the curve, led by the 5-year which spiked by 10 bps week-on-week to 3.25%, whereas yield for the 3-year and 10-year MGS benchmark closed Friday at 2.84% (up 4 bps) and 3.65% (up 9 bps) respectively.

On primary news flow, the local market was introduced to its first government bond auction via a 5-year MGS reopening last week. The issuance of RM5.0 billion in size garnered a bid-to-cover ratio of 2.3x (the strongest level seen for short-tenured govvies since August 2020) and closed at an average yield of 3.27%. Support is expected to remain vibrant for the upcoming 10-year MGS auction as well, especially following the recent correction in yield.

Moving on, the Private Debt Securities (“PDS”) space also endured relatively quiet week. The ultra-long government guaranteed (“GG”) segment traded 2 bps lower, while AAA-rated papers – from the likes of Sarawak Hydro, Malaysia Airports, and several banking names among others – also traded firmer by 1 bp. On the other hand, the AA segment traded sideways for the most part with yields barely unchanged.

In terms of our portfolio action for the week, we have taken profit off some of our holdings in ultra-long GG papers as well as longer dated govvies; and simultaneously, increasing our position in high quality, AAA-rated names via Malaysia Airports and a few domestic banks. Our preference at this juncture is tilted towards short- to medium-tenured corporate bonds which offer better yield pick-up. Currently, our cash level is around the 7.0-8.0% mark across our domestic fixed income funds.
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This content has been prepared by Affin Hwang Asset Management Berhad (hereinafter referred to as “Affin Hwang AM”) specific for its use, a specific target audience, and for discussion purposes only. All information contained within this presentation belongs to Affin Hwang AM and may not be copied, distributed or otherwise disseminated in whole or in part without written consent of Affin Hwang AM. 

The information contained in this presentation may include, but is not limited to opinions, analysis, forecasts, projections and expectations (collectively referred to as “Opinions”). Such information has been obtained from various sources including those in the public domain, are merely expressions of belief. Although this presentation has been prepared on the basis of information and/or Opinions that are believed to be correct at the time the presentation was prepared, Affin Hwang AM makes no expressed or implied warranty as to the accuracy and completeness of any such information and/or Opinions. 

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Affin Hwang AM is not acting as an advisor or agent to any person to whom this presentation is directed. Such persons must make their own independent assessments of the contents of this presentation, should not treat such content as advice relating to legal, accounting, taxation or investment matters and should consult their own advisers. 

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TENG CHEE WAI

Managing Director
Teng Chee Wai is the founder of Affin Hwang Asset Management Berhad (Affin Hwang AM). Over the past decade, he has built the Company to be the fastest growing and only independent investment management house in Malaysia’s top three, with an excess of RM47 billion in assets under management as at 31 December 2018.​

​In his capacity as Managing Director / Executive Director, Teng manages the overall business and strategic direction as well as the management of the investment team. His hands-on approach sees him actively involved in investments, product development and marketing. Teng’s critical leadership and regular participation in reviewing and assessing strategies and performance has been pivotal in allowing the Company to successfully navigate the economically turbulent decade.

Teng’s investment management experience spans more than 20 years, and his key area of expertise is in managing absolute return mandates for insurance assets and investment-linked funds in both Singapore and Malaysia. Prior to his current appointments, he was the Assistant General Manager (Investment) of Overseas Assurance Corporation (OAC) and was responsible for the investment function of the Group Overseas Assurance Corporation Ltd.​

​Teng began his career in the financial industry as an Investment Manager with NTUC Income, Singapore. He is a Bachelor of Science graduate from the National University of Singapore and has a Post-Graduate Diploma in Actuarial Studies from City University in London.
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